question archive A higher tax rate is more likely to increase tax revenue if the price elasticity of demand is _____ and the price elasticity of supply is _____
A higher tax rate is more likely to increase tax revenue if the price elasticity of demand is _____ and the price elasticity of supply is _____
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A higher tax rate is more likely to increase tax revenue if the price elasticity of demand is _____ and the price elasticity of supply is _____.
A. low; low
b. low; high
c. high; low
d. high; high
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The correct answer is: A. low; low
The tax revenue is increased when both price elasticity of demand and supply are low. That is, they are both inelastic. The more the inelastic the demand is, the easier the customers are likely to pay higher prices with little decrease in quantity demanded. The more the inelastic the supply curve is, the easier it is for the sellers to increase the quantity sold and higher the prices. For example, cigarettes have both inelastic demand and supply.
